South Africa has Africa’s second-largest arms market with the country’s total defense expenditure increasing at a CAGR of 9.55% in the review period (2008-2013), to value US$4.7 billion in 2012. The country spent a total of US$20.9 billion on defense during the review period.

One of the major challenges to the South African defense industry is corruption, as evidenced by the fact that the country’s last major defense procurement deal, which occurred in 1999 and valued US$3.5 billion, was one of the biggest corruption incidents in South African history. In addition, the relatively small size of South Africa’s defense industry often discourages foreign companies from entering the country, as companies seeking large-scale economies are reluctant to invest heavily in a relatively small market, a reluctance compounded by the mandatory minority stake foreign companies are obliged to undertake and South Africa’s lack of a strong defense policy.

The country adheres to a strong offset policy, which channels much-needed capital to its domestic defense industries. A 50% offset is obligatory for all contracts, with an additional 30% National Industrial Participation fee required for contracts worth over US$10 million. The country follows a credit system for valuing offset obligations.